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At first glance, the latest jobs report provided encouraging signs that America’s economic recovery is beginning to gain momentum. The U.S. Department of Labor reported that 288,000 jobs were created in April 2014, the biggest jump in more than two years. At the same time, unemployment dipped 0.4 percentage points to a five-and-a-half year low of 6.3%.

Dive one layer down, however, and that light at the end of the tunnel isn’t quite as bright. 800,000 Americans either retired or gave up looking for work last month. Not only does that figure largely account for the 0.4% decrease in unemployment; it drove the labor force participation rate (a measure some believe to be a far more accurate accounting of the employment landscape) down to 62.8% – or as low as it’s been since March 1978.

Seven years past the financial crisis, we’re still not out of the woods. At this rate, the Great Recession may end up outdistancing the Great Depression before real recovery takes hold (which is not altogether surprising, given that the complexities of today’s global economy require more time to reverse periodic downturns). Yet, still, the policy fixes that have been implemented and floated since Bear and Lehman collapsed continue to overlook the one economic sector that creates more jobs than any other: small business.

If you need more evidence of the powerful correlation between small business growth and economic stability, consider the fact that by June 2011, small business lending had constricted by 18% overall, and that the number of commercial and industrial loans of less than $1 million dropped by 344,000 between 2007 and 2012 – despite an increase of more than 100,000 small business over that period.

It is statistics such as these that led former Federal Reserve Chairman Ben Bernanke to state “Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges." And yet, the sweeping programs implemented to date – such as TARP and Dodd-Frank – have been singularly focused on big banks and big business.

While TARP helped shore up behemoths such as Citi and Bank of America, it did little for the community banks small businesses predominantly rely upon, which are in steep decline since 2008. At the same time, the Dodd-Frank measures that built confidence in the big banks created undue regulatory burdens for community lenders that still can’t adequately funnel capital through all that red tape.

While the big banks – some of which slashed small business lending by as much as 84% post-crisis – continue to keep a tight grip on the faucet due to higher monitoring costs per dollar of funds borrowed and lack of capital to back up incurred debt, the community banks willing to back small business are drowning in policy that puts them at the back of the line.

Worse yet, the problems aren’t solely relegated to the banking sector. Non-bank institutions seeking market-based solutions to small business lending are feeling a policy squeeze as well. Sam Hodges is the Founder and Managing Director of Funding Circle USA, an online loan marketplace and underwriter that seeks to connect investors with small businesses seeking loans of up to $500,000. Mr. Hodges and others see great potential in non-bank lending’s ability to get capital flowing to small business, but he is operating under a regulatory framework that simply hasn’t kept pace with innovation.

“Marketplace lenders such as Funding Circle face complex, oftentimes overlapping sets of state and federal regulation. Current securities rules didn’t anticipate online securities marketplaces,” says Mr. Hodges. “That means we are forced to work across the entire regulatory framework to ensure total compliance. Regulation is necessary to build trust in what we do and weed out those organizations that might not employ rigorous credit screens or might not be fully transparent about rates or with investors. But right now, there is no doubt that the number and complexity of the rules are keeping quality loans out of the hands of small business. We absolutely need investor and borrower protection, but the current regime is cumbersome and discourages innovation.”